MARKET WRAPS
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EU Harmonised CPI; no major corporate trading updates expected
Opening Call:
European stock futures were little changed. Asian stock benchmarks were broadly lower; the dollar weakened slightly; Treasury yields steadied; while oil futures were mixed and gold fell.
Equities:
European stock futures were treading water early Tuesday as investors continue to bet on interest rate cuts next year.
San Francisco Fed President Mary Daly said Monday that it is appropriate for the central bank to begin looking ahead to lowering interest rates in 2024 because of how inflation has improved this year.
"The market is kind of coasting on momentum," said Michael Antonelli, market strategist at Baird.
"When you get these year-end rallies after a year where people did a lot of hand-wringing, it's mostly positioning..It's people saying, 'I can't afford to be on the sidelines,'" he said.
Analysts expect major U.S. data on inflation, household income, and spending due Friday to be the next big mover for the markets.
This week has the potential to be relatively quiet until then.
Forex:
The U.S. dollar was a tad weaker early Tuesday.
The dollar can expect a "shallow" depreciation in 2024, while the euro is likely to gain some momentum, strategists at Indosuez Wealth Management said.
"We expect the dollar to depreciate slightly in 2024, as lower federal interest rates and a weak global economy may favor high-beta currencies, " they said.
Avoiding a recession in Europe should fuel risk appetite for the euro.
"We believe that the European economy will recover from the energy shock and regain a better balance with the rest of the world, with our growth scenario in line with market consensus, which should slowly support the currency's recovery."
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The yen weakened after the Bank of Japan kept its policy targets unchanged and didn't include any reference to possible interest-rate increases.
Analysts and traders now expect the bank to scrap negative interest rates in the first part of next year, perhaps at policy meetings in January or April.
Bonds:
Treasury yields were little changed as traders considered arguments against a dovish policy pivot by the Federal Reserve in early 2024.
"Central bankers have begun to push back against the prospect that easing could begin in March in the U.S. and the Euro area. We agree, as there are a number of steps to go through before the Fed, ECB, or BoE can cut, especially with the reporting lags in the 'hard data' they'd need to see," strategists at Macquarie said.
"The ECB and BoE are especially attuned to the wage data - the main 'hold-up' to a clearer easing signal in the Euro area and U.K. But the Fed has [to] overcome the wage hurdle."
As shelter rents drive disinflation, "the Fed could cut sooner than its peers - in May or June," they said in a note.
Energy:
Oil futures were mixed in Asia on concerns over supply disruptions following the recent attack on ships in the Red Sea.
Oil giant BP on Monday paused oil and gas shipments through the Red Sea on concerns over worker safety.
Meanwhile, "there's still a lot of uncertainty and debate around the demand outlook for next year," Craig Erlam, senior market analyst at Oanda, said.
While the prospect of rate cuts has boosted the odds of a softer landing which could support demand, there's a risk that past cuts could have an even more dampening impact on the global economy or that OPEC+ compliance may be weak, he said.
Metals:
Gold prices fell early Tuesday.
"We keep a bullish outlook for gold into 2024 in the firm belief that rates have peaked, and that Fed funds and real yields will start to trend lower," Saxo Bank said.
Central banks' demand for gold is also potentially heading for another record year, with more than 1000 tons being removed from the market for a second year running, it said, adding that this is one of the main reasons the yellow metal has managed to rally despite surging real yields.
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Copper prices were flat.
The recent rebound in copper prices has been driven by the rapid decline in U.S. inflation and the end of the Fed's monetary tightening cycle, Tongguan Jinyuan Futures analysts said.
Although China's deflationary pressures still exist, the housing-market easing measures could prop up copper prices, as the metal is widely used in power and construction industries, they added.
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Iron ore futures were higher with investor sentiment likely still buoyed by the recent mortgage easing measures in Beijing and Shanghai.
However, considering the poor operating conditions of steel mills in China, weak steel demand may continue to suppress iron ore prices, analysts at Baocheng Futures said.
TODAY'S TOP HEADLINES
Bank of Japan Sticks to Negative Interest Rates for Now
TOKYO-The Bank of Japan on Tuesday kept its policy targets unchanged amid expectations among analysts that the bank is likely to end its negative-interest-rate policy in the first half of next year.
The yen weakened after the announcement, which didn't include any reference to possible interest-rate increases in Japan.
Fed Official Says Rate Cuts Could Be Needed Next Year to Prevent Overtightening
A Federal Reserve official said it is appropriate for the central bank to begin looking ahead to lowering interest rates in 2024 because of how inflation has improved this year.
San Francisco Fed President Mary Daly said her outlook for interest rates and inflation was "very close" to the median of projections from 19 Fed officials last week. Most of them penciled in at least three rate cuts next year amid a faster decline in inflation than they anticipated.
Bank of America Bond Losses Narrowed From Rally to Estimated $100 Billion
Few bank CEOs are probably happier with the bond market rally than Bank of America's Brian Moynihan.
Bank of America was sitting on the industry's largest unrealized bond losses by a wide margin at the end of the third quarter and those losses have narrowed significantly since the fixed-income rally got under way in late October.
Why Central Banks Should (but Might Not) Keep the Market Flooded With Money
Money printing gets a bad rap, but it may be better than the alternative.
In the shadow of today's big monetary-policy debate about when central banks might cut interest rates lies another crucial question: How should they go about setting rates?
It's not even the new year and Goldman Sachs has already lifted its S&P 500 target
The ink barely dried on Goldman Sachs' S&P 500 forecast for next year before the Wall Street bank decided it just wasn't bullish enough.
Chief U.S. equity strategist David Kostin bumped to 5,100 the 4,700 target that was laid out just weeks ago - 8% upside from where the index stands currently. The S&P 500 SPX climbed 2.49% last week to close at 4,719.19, just 1.6% off its Jan. 3, 2022 record high.
Why UBS Wants to Be the No. 6 Investment Bank in the U.S. (Yes, No. 6)
More than a decade after throwing in the towel on its hopes of being a major player in the lucrative U.S. investment-banking market, UBS is making another push, but this time the Swiss financial giant's ambitions are a bit more measured.
The takeover of local rival Credit Suisse and turmoil at other global peers has opened a door of opportunity to build back up a business that has been lagging behind rivals, UBS executives say. They have been on a hiring spree for senior deal makers, expanded research coverage and are ramping up pitches to potential clients.
U.S. Vows Naval Forces to Protect Ships Passing Through Suez Canal
The U.S. unveiled a multinational naval force to protect merchant vessels in the Red Sea after Houthi rebel attacks threatened the Suez Canal's central role in global trade.
On Monday, the Pentagon said it was establishing a security operation to protect seaborne traffic from ballistic missiles and drone attacks launched by the Houthi groups in Yemen. The effort, called Operation Prosperity Guardian, will include the U.K., Bahrain, France, Norway and other countries.
Musk's X Faces Probe in Europe Over Handling of Illegal Content, Disinformation
BRUSSELS-Elon Musk's social-media platform X will face a formal probe in Europe over its handling of illegal content and disinformation in a first test of the European Union's new online-content law.
The European Commission, the bloc's executive arm, said Monday it opened a formal infringement proceeding against X, the platform formerly known as Twitter, under the Digital Services Act. The EU legislation, which took effect earlier this year, requires some of the world's biggest online platforms to take steps to address illegal content and offer users a way to register complaints about the platforms' moderation decisions, among other rules.
Volcano Near Iceland's Grindavik Erupts After Series of Earthquakes
A volcano has erupted in Iceland after a string of earthquakes rattled the area Monday evening.
The eruption began at approximately 10:17 local time, according to the Icelandic Meteorological Office. It occurred about 2.5 miles northeast of Grindavik, a small fishing town around 30 miles southwest of the country's capital, Reykjavik.
Amazon in Talks to Invest in Diamond Sports
Amazon is in talks to invest in the biggest regional-sports programmer, a move that would advance the e-commerce giant's aggressive push into sports content as it takes on streaming rivals like Disney and Netflix.
Diamond Sports Group, which carries the games of more than 40 major sports teams across the country and filed for bankruptcy earlier this year, is actively negotiating with Amazon about a strategic investment and a multiyear streaming partnership, according to people familiar with the matter.
Apple to Halt Watch Sales as It Prepares to Comply With U.S. Import Ban
(MORE TO FOLLOW) Dow Jones Newswires
12-19-23 0015ET
